As the calculations below show, even at a cost of $25/dose, KV could have recovered its initial $200 million investment in Makena in just one year, and then could have netted an additional $1.2 billion in profits over the remainder of the 7-year monopoly that FDA approval gives a drug manufacturer (that monopoly was what KV was banking on, and what the FDA exception negated). That’s gross profits of six times their alleged initial investment—a pretty sweet deal for a drug you didn’t even invent, and that you got approved through a taxpayer-subsidized study.

How do I figure that? The calculations are shown in the table below (or, download the spreadsheet). Since pharmacies were previously selling the compound at $10-20/dose, I assume that KV’s manufacturing cost would be $5/dose. That is an extremely charitable assumption, since KV’s large scale production would be much more efficient and less labor-intensive than the small-scale pharmacy batch production, which itself was probably at a cost of $5/dose (assuming a conservative 100% mark-up of raw material and labor costs). Based on 500,000 premature births/year, that’s a potential market of ten million doses, yielding potential profits of $200 million/year. Even assuming higher costs and lower market penetration, at $25/dose, KV would still be making hundreds of millions in profits.

That’s at a price of $25/dose, which neither the FDA nor a single preemie family in the country would have complained about, happily accepting that $5-15/dose mark-up in exchange for the higher quality and consistency that KV’s product would have represented. But instead, KV opted for the absurdly extortionate price of $1500/dose, which over the course of their planned monopoly could have yielded them over $100 billion, or gross profits of 522 times their initial investment. (NB: KV’s original price tag yielded a total cost to patients of $30K for each at-risk pregnancy, since 20 doses were required. KV and Ther-Rx justified that cost by portraying it as a “bargain” relative to the $51K to care for a premature infant in the first year of the infant’s life.)

Even KV’s modified plan to charge $690/dose and increase subsidies so that 85% of families pay no more than $20 yields gross profits of $7.7 billion and gross profits of almost 40 times KV’s initial “investment, since an unlucky 15% of clients are still paying the only slightly less extortionate $690. At that price, even lower levels of market penetration, KV and Ther-Rx would still recoup their initial investment in about seven months and net $2.25 billion in gross profit over their seven-year monopoly period.

How’s that sound to you? To me, it still sounds pretty darn greedy.

KV’s original plan

KV’s Plan B

Less greedy, but still enormous profits

price

$1,500

$690

$20

$121

$25

cost

$5

profit

$1,495

$685

$15

$116

$20

premature births/year

500,000

course (doses)

20

demand (doses/year)

10,000,000

market share

100%

15%

85%

100%

100%

share sold at cost

0%

0%

0%

#N/A

0%

sales (doses/year)

10,000,000

1,500,000

8,500,000

10,000,000

10,000,000

profit/year

$14,950,000,000

$1,027,500,000

$127,500,000

$1,155,000,000

$200,000,000

investment

$200,000,000

Total profit for 7 year monopoly period

$104,450,000,000

$6,992,500,000

$692,500,000

$7,685,000,000

$1,200,000,000

Profit ratio

522.3

238.8

4.3

39.4

6.0

***

Here’s Sen. Sherrod Brown (D-OH) speaking out against KV and Ther-RX’s extortionate price (strangely, Republicans didn’t seem as upset about it), and HHS Secretary Sebelius countering KV’s threats to pharmacies that they would be subject to penalties if they continued to compound the drug (read our earlier piece for more on that).

NB: It’s also interesting to note that KV has had more than its share of past problems, including another wholly-owned subsidiary’s criminal conviction for selling oversize morphine tablets and then concealing that from the FDA. So like I said before, KVarma’s a bitch.